18 January 2016

South Africa: Eskom Bid Could Mean 16 Percent Tariff Hike for Consumers

All cities in South Africa will face an electricity tariff increase of at least 16% in July if Eskom is granted a R22.8bn adjustment for the 2013/2014 financial year, according to Leslie Rencontre, director of electricity at the City of Cape Town.

Eskom made a regulatory clearing account (RCA) application for this amount to the National Energy Regulator (Nersa) on Monday.

In reaction to Eskom's application, Rencontre told the Nersa panel it would mean an additional 8.6% increase over and above the already approved multi-year price determination increase of 8%, should Eskom be granted the full amount applied for.

"The Eskom increase would have to be passed on to City customers through increased City electricity tariffs from July 1 2016," warned Rencontre.

The bulk of the R22.8bn adjustment Eskom is asking for, is made up of reduced revenues of R11.7bn and increased primary energy costs of R14.4bn.

"Electricity prices are already high for business and residential consumers, including the poor," Rencontre said.

"Any additional increase approved by Nersa will have a further negative impact on Cape Town's economy."

In his view, the R11.7bn reduction in revenue that Eskom experienced during the 2013/14 financial year should be offset by the R7.1bn profit it reported during that financial year.

"An additional tariff increase for customers who heeded the call to save energy, would be like charging them for saving electricity," said Rencontre.

On top of that he claimed that delays in the building of the Medupi and Kusile power stations, for instance, were "consequences of Eskom policy and decision making" and should not be passed on to consumers.

In his view, the additional R8bn claimed by Eskom for open cycle gas turbine (OCGT) costs should be offset by the energy lost due to delays at Medupi and Kusile as well budgeted availability of existing plants.

He said the City had budgeted for a decrease in energy spend over the medium term as he doubted there would be a 3% growth in energy demand in the city, as seen before. Therefore, he foresaw an extended period of lack of increase in energy sales at the City.

"The state being Eskom's shareholder makes this a difficult situation as the pain of Eskom will then have to be taken by all citizens," said Rencontre.

"If Eskom was a private company, on the other hand, then its shareholders would have had to take the pain."

Nersa regulator Thembani Bukula said it would do what was in the best interest of Eskom, as well as South Africa.

Source: Fin24

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